Waste management cost for Australia is increasing every year, and thus, it is important to find alternative ways to use the waste. For example, essential oil has a significant waste stream that can be utilized in vehicles of their producers. However, some of the essential oils contain oxygen which considerably affects engine performance, emission, and combustion characteristics of diesel engines. Thus, this research paper will try to evaluate the essential oils as a replacement of diesel fuel to operate a multicylider diesel engine. For this study, two essential oils are selected which contain different oxygenated functional groups, tea tree oil (5.4% oxygen) and eucalyptus oil (8.4% oxygen), with an aim to evaluate the effect of these functional groups on engine performance and emission parameters. These oils were blended with neat diesel (0% oxygen) to obtain a blend cotaining 2.2% oxygen by weight. The blends produced similar brake power; however, brake-specific fuel consumption (BSFC) increased for eucalyptus oil blends (2.4–3.7%) and tea tree oil blends (3.9–5.3%). Essential oil–diesel blends resulted in less CO and increased NOX emission, produced similar peak pressure, and indicated mean effective pressure. The results then lead to the conclusion that oxygenated essential oils can have a role to reduce dependency of agricultural sector on diesel in the near future.